Navkar Corporation IPO has created diverging recommendations among the analyst fraternity. The IPO of the Raigad-based logistics player will remain open between 24 August and 26 August for subscription in a price band of INR147 – 155 per share. The IPO will mobilize INR600 crore through a combination of fresh equity and offer for sale.
Meanwhile, the company placed 1.16 crore shares to anchor investors on Friday to raise INR180 crore. A total of 15 anchor investors including mutual funds were allotted shares at the higher price band. Included among the investors are Abudhabi Investment Authority (10.32 lakh shares), Morgan Stanley Investment Mauritius (6.45 lakh shares), Ashburton India Equity Opportunities Limited (5.8 lakh shares), Nomura Singapore (3.22 lakh shares), Prime India Opportunity Fund (3.22 lakh shares) and Amundi Funds (3.22 lakh shares).
Navkar Corporation plans to use IPO proceeds towards capacity enhancement of the Somathane container freight station (CFS), development of the non-notified areas of CFSs and establishment of a logistics park at Valsad in Gujarat. However, analysts at brokerage houses are divided about the prospects of the IPO. Here are a few snapshots:
Analysts at KR Choksey have recommended investors to SUBSCRIBE to the issue while maintaining it is a long term story. “Navkar Corporation Ltd continues to focus on ancillary services to capture greater cargo volumes. It is engage with shipping lines and customs house agents they work with to provide solutions for their ancillary cargo handling requirements such as packing, labeling, palletizing, shrink wrapping, strapping, jumbo-bags packing and carting. A greater focus on such services will allow to attract more cargo volumes as all cargo handling requirements will be catered to by a single service provider,” said the brokerage house while adding that increasing competition is a challenge for the company.
Angel Broking also said Navkar Corporation is a long term play but advised investors to SUBSCRIBE. “Currently, NCL looks slightly expensive in terms of PE valuation. Going forward, in our view, the company will be less expensive on a PE valuation basis on the back of exponential growth in revenue with strong expansion plans for existing CFSs (capacity of CFSs to increase by 81% to 5,62,889 TEUs at a low investment cost),” said the brokerage house in a research note.
ICICIdirect.com has been more candid and has advised investors to AVOID the IPO, underlining high concentration on a single port, high debt levels and steep valuations as prime concerns. In a research note, the brokerage house maintained there are more established and larger players like Allcargo Logistics and Concor that are growing at higher annual rates and are available at better valuations. Some of these points are common to our reading of Navkar Corporation’s IPO prospects.
Analysts at Reliance Securities sounded a positive recommendation on the IPO, while acknowledging high valuations. “At the price band of INR147-155, the issue is priced at P/E of 28.7x and 30.2x on its FY15 diluted EPS. Based on our back-of-the-envelope calculation, NCL is valued at 20.4/21.5x FY17E EPS. While in the short term, valuations may seem expensive, but considering the long term growth prospects of the company on the back of increasing capacity and utilization coupled with higher EXIM trade due to various initiatives taken by the government, makes it a compelling story as valuations will continue to taper,” the brokerage house mentioned in a research note.
While there is little room for ambiguity on the long term prospects of the Indian economy, high valuations is a common thread in almost all research notes. An excellent point to ponder here, too much of long term may be fatal for investors.
In the long term, we are all dead.
– John Maynard Keynes
Now that investors have options in the IPO market next week, there is a strong case to look beyond the logistics sector and consider the IPOs of Pennar Engineered Building Systems and Shree Pushkar Chemicals & Fertilisers.